Digital Money and Central Bank Operations

Charles Kahn, Manmohan Singh and Jihad Alwazir

No 2022/085, IMF Working Papers from International Monetary Fund

Abstract: The rise of new and proposed monetary vehicles, including CBDC, stablecoins, payment service providers etc., are unprecedented. An important question for central banks is the extent to which these innovations upend the role of and implementation of monetary policy. The paper focuses on the interest rate channel and if digital money (especially CBDC) will change monetary policy and central bank operations. We argue that new policy instruments make sense only to the extent that there is limited substitutability between the various payment sectors. We analyze trends in currency-in-circulation, and how it may impact central bank’s seigniorage, monetary base, and transactional velocity of digital money if money demand declines. Liquidity outside the monetary base will also be important to understand.

Keywords: Base money; CBDC; central banking operations; currency in circulation; digital money; mobile phone operators; seigniorage; central bank operations Charles Kahn; jihad Alwazir; lender-of-last-resort facilities; payments assets; phone company payments account; central bank profits; central bank regulation; Monetary base; Digital currencies; Central Bank digital currencies; Currencies; Commercial banks (search for similar items in EconPapers)
Pages: 23
Date: 2022-05-06
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-pay
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Citations: View citations in EconPapers (9)

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